Greece to pass anti-austerity bill to guarantee food and electricity to thousands in poverty

You are under the illusion that because the government has a large amount of debt that it's not responsible for actually paying the debt. This betrays a dangerous lack of understanding of the underlying debt instruments.

Government debt is mostly held in the form of bonds. These bonds are sold to mature at a particular time, and pay out their face value at that time (sometimes the interest is lumped in, sometimes it pays out in "coupons" over the life of the bond). Bonds are constantly coming due, being paid, and the debt renewed as new bonds (sometimes to the original bondholder, sometimes to new ones, just depends on the market at the time of renewal.)

It's not like all the debt is held by a bank and the government can ring up the bank and say "uh, yeah, we're a little short this month, we'll catch up later." They have to constantly sell bonds to raise funds to pay off the old bonds. It's true that as an accounting identity, the cumulative cost of all this is just the interest on the bonds - but for that calculation to work, you have to be able to sell the new bonds.

This means that keeping your credit clean, as a government, is a lot more important than doing so as a private individual. If the government loses access to the bond market, or if the bond market wants more interest than the government can pay out, the government -loses the wherewithal to pay off the remainder of the debt-. They cannot just sit on the debt they have. Like a shark, if they don't keep swimming...

This is why governments don't just default on a little debt. If you default on ANY debt you'd better default on all of it, because you can't raise the dough to pay off the bonds as they come due.

This is why the relief that the rest of the EU is providing is in the form of loan guarantees. Greece's problem (not the underlying one of "too much debt and too crappy government finances", but the immediate one) is that bond-holders weren't willing to loan to them except at super-high, break-your-country interest. The guarantees mean Greece can buy debt at interest rates it can sort of afford, almost.

Countries which sell debt in currencies they print can just say "here's a pile of funny money to pay the debts" and take the inflation hit. (And they pay higher interest rates than they might otherwise do because of this.) Greece had the other side of that - it paid much lower rates than it would have because lenders knew that Greece couldn't conjure up a squintillion Euros.

Lots of people like to say "sure, but it makes sense for the government to run a deficit in order to make investments that will ultimately result in greater growth than the interest on the debt." Yeah, and that's great when it works. Governments are much better at promising spending that will increase growth than they are at actually delivering that growth. An individual can take out a loan and go to college and make more money later - but if they end up taking the money from that loan and going to the liquor store, the expected benefits won't materialize.

/r/worldnews Thread Link -